Maybe you reached out to friends and family, but you know they lost their shirts when your brother-in-law’s salmon-flavored energy drink flopped. Is this the death of your nascent business?

Not. So. Fast.

Social media is changing more than the way we market and communicate… It’s changing the way we raise capital.

Crowdfunding websites are popping up that connect entrepreneurs with investors, producers with patrons, and causes with contributors.

What is crowdfunding?

Crowdfunding builds upon the idea of crowdsourcing: “the act of outsourcing tasks, traditionally performed by an employee or contractor, to an undefined, large group of people or community (a “crowd”), through an open call.” (Wikipedia)

Crowdfunding pulls together a community—tightly knit or disparate—to fund a project, business or cause, usually via the Internet.

How does it work?

Although the rules differ from site to site, generally people (or businesses or charities) pitch an idea, set a fundraising goal and set a deadline for raising funds.

Potential patrons can review the pitches and decide if there are any they’d like to support. On most crowdfunding sites, people are not investing in the project or business; rather, they are funding it. They are rewarded if the project comes to fruition, but don’t end up owning any part of the business or project.

This is in part due to U.S. regulations currently under review by the SEC, so this may change in the near future. However, different sites have different rules, especially those based outside the U.S., so make sure you review the terms and conditions carefully!

To launch your own project, I’ll focus on Kickstarter—one of the most popular crowdfunding sites—as an example.

You start with a pitch: you describe your project, specify what rewards patrons will receive if the fundraising is successful and create a funding goal and a timeline.

If you don’t reach your funding goal by the deadline, no money changes hands. As Kickstarter says, this “protects everyone involved. Creators aren’t expected to develop their project without necessary funds, and it allows anyone to test concepts without risk.”

Pledges are made with a credit card; if you’re backing a project, your card won’t be charged until the project is successfully funded.

#2: Know your target audience(s)

Fox had two built-in niche audiences to target: fans and followers of her primary subject Tibetan Buddhist Master Chögyal Namkhai Norbu, of which there are many worldwide, and the estimated 7,000 people that Fox cultivated during the grassroots release of her last film, 2006’s “Flying: Confessions of a Free Woman.”

Focusing on a passionate niche can help, too. Many of the successful projects on crowdfunding sites target a specific, narrow audience. The target audience might be focused in a geographic area, religious in nature or share a common background. Graphic novels and music tend to do well, too.

Targeting an audience is key to your success.

#3: Plan ahead

According to John T. Unger, an artist and designer who has successfully funded a project on Kickstarter:

The best advice I have is to plan ahead. A Kickstarter project can go by really quickly.

The vast bulk of backers seem to happen at the very beginning and very end of a project, according to Kickstarter’s own data. That makes sense… it’s exciting when it’s new and it’s exciting when it’s down to the wire.

In the future, I’ll be sure that I have emails written specifically for the beginning, middle and end of a project so that I can keep it active. When a project does take off it can be kind of overwhelming to respond to everyone quickly enough, so FAQ-type emails that are pre-written help a lot too.

How to Make Better “Data-Driven” Marketing Decisions in Less Time— Without the Guesswork!

“People engage things: a) when they’re brand-new, or b) when they’re nearing a deadline. We lose interest in that middle space.”

Planning ahead and preparing email blasts can be the difference between success and failure.

#4: Passionately pitch your project.

You’ve heard the old saying, “you only get one chance to make a first impression.” Well, it’s even tougher on popular crowdfunding sites where there are 30 other projects simultaneously trying to make a first impression on the same page.

Your project name, graphics and description all play an important role.

Create a compelling name, description and an image as part of your project to help you stand out. A video is critical, too. (See #10 for more on that.)

#5: Have a plan for spending their money.

No matter how cool your idea is, most people want to know that you’ve got a plan that will get you there. Ricebowlproject suggests that you “give a detailed explanation of how exactly you’ll be using their money and keep all costs transparent. This will build trust in you and credibility in your project.”

People like to invest in a solid plan.

#6: Leverage your social networks.

It’s important to realize that most of your audience may not be familiar with crowdfunding. Chances are you’ll need to use social media, email marketing and other communication tools to drive your community to your project at a crowdfunding site.

Unger says:

[Crowdfunding sites aren’t] “much different from any other launch in a lot of ways—so to get attention, I used the same tools as usual: email to the list, Twitter, Facebook, etc.”

Yet again, the importance of list-building and networking can’t be overstated.

Do you need help leveraging your social networks? Social Media Examiner is filled with hundreds of helpful posts, including:

#7: Break up bigger projects

None of your potential patrons are likely to drop $100,000 on your next big thing. If they were that flush, they’d probably be investing with Bernie Madoff. (Hmmm… Maybe they were.)

Your project has a better chance of reaching its funding goal if you break the project into smaller, bite-sized pieces. You might break your video into filming, editing and distribution. Rather than trying to raise enough to start a business and make payroll for two years, start by raising enough to build a prototype of that solar-powered toothbrush you’ve been dreaming about.

Break your bigger project into smaller, fundable pieces.

People like to feel like their contribution is going to make a difference. Fifty dollars makes a bigger splash when you’re raising $1,000 than when you’re raising $10,000.

Smaller requests seem more attainable, and people want to feel like they’re on a “winning team.”

#8: Create compelling rewards

Kris White offered plenty of rewards for patrons of his graphic novel The 36. Some were fairly standard, including a PDF copy of chapter 1 for pledges of $1. However, four patrons who were willing to pledge $1,000 each could get their name and likeness “immortalized” as a supporting character in the story.

Being immortalized in a comic? That's super, man.

#9: Treat your crowdfunding like a campaign

Pitching a project is the beginning, not the end, of your work. You need to continually drive people to your project page. Many crowdfunding sites use traffic and early success as indicators of which projects to feature. IndieGoGo states that 50% of deciding who gets featured comes down to “pageviews, number of funders, % of goal completed.”

#10: Tell a great story… and ask for the sale

As Jeanie Finlay says in her post, Adventures in Crowd Funding, “when I launched the first campaign, I simply put up the trailer and we raised about 10 pence… I made a new trailer with me pitching the film… it made a world of difference. I now believe that people invest in the filmmakers as much as the project.”

#11: Promise—and give—credit where credit is due

People love to be acknowledged. Whether it’s on the liner notes, film credits or etched into the wall in your retail space. Let people know how they’ll be credited and follow through. It gives you a great story to tell and builds your base for your next crowdfunded adventure.

Takeaways Tips on Crowdfunding

Successful campaigns require passion, a clear vision and a strategic plan that can be executed. You’ll get the most activity at the beginning and end of your campaigns, but you need to be working for your goals throughout.

Have you financed a project through crowdfunding, or are you planning to do so in the near future? If so, please share the details (and links) below. If you have your own tips and tricks not mentioned above, we’d love to hear about those, too. Leave your questions and comments in the box below.

How to Make Better “Data-Driven” Marketing Decisions in Less Time— Without the Guesswork!

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